Author Topic: Should I refinance to get rid of PMI?  (Read 2374 times)

Broadway2019

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Should I refinance to get rid of PMI?
« on: January 23, 2018, 09:54:00 AM »
Asking again since this question was embedded in my last post with other questions.

Ok so I finally received my appraisal back and can refinance to drop PMI. I currently have an escrow shortage of $3,000 due to an increase in property taxes. Should I refinance?

Current Situation: 20 Year Fixed Rate (19 to go) Interest rate: 3.50%
Monthly payment: $2,869.39 (broken down as $2,041.54 principal and interest + $330.65 property taxes + $51.14 hazard insurance + $193.61 PMI + $252.45 shortage in escrow account)
I think the shortage amount will go away once we are caught up though in escrow. So really it's $2616 after 12 months.

Option : 20 Year Fixed Rate Interest rate: 3.750%
Monthly payment: $2,422.59 (broken down as $2041.02 principal and interest + $330.43 property taxes + $51.14 hazard insurance)
This includes some of the shortage being rolled into the loan and $2100 out of pocket ($490 is the appraisal we already paid). They can close on this within 1 week.

Sibley

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Re: Should I refinance to get rid of PMI?
« Reply #1 on: January 23, 2018, 10:03:35 AM »
Given that you'd be increasing your interest rate, is there any option to remove the PMI from the existing mortgage?

ixtap

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Re: Should I refinance to get rid of PMI?
« Reply #2 on: January 23, 2018, 10:11:40 AM »
What percentage of the home value is the current loan? Often, you are eligible to drop PMI at 80%, but it isn't dropped for you until ~75%. In between, you have to ask that it be dropped.

Can you present the current lender with the appraisal?

PMI is only due during a portion of the loan, the higher interest rate will be for the duration. Just the closing fees you mention will cover this year's PMI. Could you have the loan paid down to 80% by the end of the year.

ohsnap

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Re: Should I refinance to get rid of PMI?
« Reply #3 on: January 23, 2018, 10:21:08 AM »
What are the total closing costs?  What is your total escrow shortage? (I'm guessing about $250*12 or $3k?) I saw your last thread and thought it was confusing because you are treating the escrow shortage as part of your house payment.  It's better to think of it as an additional tax amount that you owe, whether you spread it out over the next year, or roll it into a new loan.  Or pay it all off right now, for that matter. 

I think you should find out what you need to do with your current lender to drop PMI and work toward that, rather than your proposed triple whammy:
1. Incurring closing costs on a new loan (whether or not they are rolled into the loan or paid up front)
2. Increasing your interest rate for the next 20 years
3. Rolling a short-term liability (property tax shortage in escrow) into your loan.

My short answer is "No, you shouldn't refinance to get rid of PMI" based on the above.
« Last Edit: January 23, 2018, 10:22:41 AM by ohsnap »

Broadway2019

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Re: Should I refinance to get rid of PMI?
« Reply #4 on: January 23, 2018, 10:28:04 AM »
Given that you'd be increasing your interest rate, is there any option to remove the PMI from the existing mortgage?

No they would require 80% of original balance. Original balance was $352,000, we owe $340,000 - bought last year.

Broadway2019

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Re: Should I refinance to get rid of PMI?
« Reply #5 on: January 23, 2018, 10:31:45 AM »
PMI is only due during a portion of the loan, the higher interest rate will be for the duration. Just the closing fees you mention will cover this year's PMI. Could you have the loan paid down to 80% by the end of the year.

I need about $60k to get rid of PMI. And currently have $40k of debt to pay off this year.

Broadway2019

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Re: Should I refinance to get rid of PMI?
« Reply #6 on: January 23, 2018, 11:18:49 AM »

Can you present the current lender with the appraisal?

I just called Chase (our lender) and they will not drop it unless it is 75% LTV since it is less then 2 years since starting the loan. So that is not an option since we are at a 405,000 appraisal. Owe $340,000 and 75% is $303,000.

frugaliknowit

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Re: Should I refinance to get rid of PMI?
« Reply #7 on: January 23, 2018, 01:06:57 PM »
How much cash do you have?  It is very possible that paying it down provides a favorable rate of return based on the savings of not paying PMI.

What are the fees involved in the REFI?  It seems a shame to go through all that only to get a higher interest rate on your balance...
« Last Edit: January 23, 2018, 01:17:08 PM by frugaliknowit »

Sibley

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Re: Should I refinance to get rid of PMI?
« Reply #8 on: January 23, 2018, 01:27:55 PM »
Well, I guess you just learned the hard way why you should have a 20% down payment.

You need to do an amortization table. Calculate the old loan and potential new loan. Compare interest costs, pmi, etc. These are pretty easy in excel. I wouldn't be surprised if there's a template you can download from Microsoft. It's possible that it'll cost less over time to just pay the PMI and keep the lower interest rate.

robartsd

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Re: Should I refinance to get rid of PMI?
« Reply #9 on: January 23, 2018, 02:19:01 PM »
The terms of my mortgage (conventional 30 yr fixed rate loan with 5% down) allow me to cancel PMI under various circumstances where the LTV ration has been sufficiently decreased; however, within the first few years simple appreciation is not among them. I assume this is pretty standard. I think the LTV ration is calculated against the lesser of the purchase price or the purchase apraisial for the first two years regardless of other appriasals unless there has been significant improvements made to the property.

Broadway2019

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Re: Should I refinance to get rid of PMI?
« Reply #10 on: January 23, 2018, 04:23:31 PM »
You need to do an amortization table. Calculate the old loan and potential new loan. Compare interest costs, pmi, etc. These are pretty easy in excel. I wouldn't be surprised if there's a template you can download from Microsoft. It's possible that it'll cost less over time to just pay the PMI and keep the lower interest rate.

Not sure I did this right...however, it looks like over 20 years it is worse to refinance, however, if the property is kept 10 years or less it is more favorable to refinance. We will probably only stay in the house 5-7 years.


robartsd

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Re: Should I refinance to get rid of PMI?
« Reply #11 on: January 23, 2018, 04:58:02 PM »
You need to do an amortization table. Calculate the old loan and potential new loan. Compare interest costs, pmi, etc. These are pretty easy in excel. I wouldn't be surprised if there's a template you can download from Microsoft. It's possible that it'll cost less over time to just pay the PMI and keep the lower interest rate.

Not sure I did this right...however, it looks like over 20 years it is worse to refinance, however, if the property is kept 10 years or less it is more favorable to refinance. We will probably only stay in the house 5-7 years.
Not sure your 10 year table accounts for the difference in your equity at that point. Your 20 year option 1 pays $8k more principal, but your 10 year option 1 pays $10k less principle - that should mean you owe $18k more on your loan under option 1 after 10 years than under current, but you've only paid $10k less over those 10 years.

Broadway2019

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Re: Should I refinance to get rid of PMI?
« Reply #12 on: January 23, 2018, 05:10:38 PM »
Not sure your 10 year table accounts for the difference in your equity at that point. Your 20 year option 1 pays $8k more principal, but your 10 year option 1 pays $10k less principle - that should mean you owe $18k more on your loan under option 1 after 10 years than under current, but you've only paid $10k less over those 10 years.

I am not sure but what I did was look at 2 amortization tables. I did one with start date of the original loan and one starting feb'18. Then I took the amounts I would have paid at the end of 2025. So really it is a little under 8 years not 10.

Basically, I was trying to come up with a breakeven point since I don't plan on staying in the house for the next 20 years.

Broadway2019

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Re: Should I refinance to get rid of PMI?
« Reply #13 on: January 24, 2018, 07:24:20 AM »
When filling out Mortgage Professor's calculator, it states I am better off to refinance if I sell in 8 or so years. Over 20 years, it is a bad decision.

https://www.mtgprofessor.com/calculators/Calculator3a.html

Anyway, I am going to refinance since we are definitely staying in this house less than 8 years. Thank you everyone for the responses.